In consumer goods to retail supply chains, what affects the point of purchase, affects the supply chain. This has always been true, but with shelf-level collaboration and demand-driven programs expanding, it is even truer today. With that in mind, I reached out to my media contact at the SymphonyIRI Group to get a copy of a report they published earlier this year called “Price, Promotion & Merchandising: Balancing the Call Between Value and Price Relief”.
Procter & Gamble’s former CEO, A.G. Lafley, made famous the “two moments of truth” concept. The first moment of truth is what a consumer sees on the store shelf; the second is what the consumer experiences after they have bought the product (see related postings here and here). But one of the insights I got out of SymphonyIRI’s report is that the recession is shifting that first moment of truth. SymphonyIRI’s research shows that whereas “in 2007, 60 percent of consumers were making consumer goods purchase decisions at home, that number has escalated sharply. In 2010, 83 percent of shoppers are making purchase decisions before entering the store,” most prominently by making a shopping list at home prior to going into the store.
This does not mean, however, that there will be less merchandising. As the report states, “Today, two-thirds of categories achieve lift of 50% of more from CPG merchandising efforts, while one-quarter actually see lift levels above 100%.” But what it does mean is that “marketers absolutely must reach consumers in the home. The success of feature advertisements reinforced by display is undeniable proof of the importance of monitoring and marketing” against this critical consumer trend. In short, CPG supply chains need to continue to have the ability to surge to support promotions.
Another trend is less surprising: “With a solid reputation for value and quality, store-brands are well-positioned to compete in a recessionary environment.” The most important factor in selecting a product is its overall quality, listed by 92 percent of respondents as being “important” or “very important.” The second biggest factor is the item’s price, listed by 87 percent of shoppers. But just because quality was ranked higher than price does not mean CPG manufacturers are not affected. “Retailers and private label manufacturers have done a remarkable job of bringing high quality store brand options to market.” Store brands are also often a key differentiator for retailers, “and they generally carry a higher margin versus national brands.”
What does this mean for CPG manufacturers? It means that shelf-level collaboration is more important than ever. When a product is not in stock on the shelf, consumers buy a different brand about 26 percent of the time, according to some statistics I have seen. If they buy a high quality private label, that consumer is very apt to never again buy that product from the CPG manufacturer.
At our upcoming seminar in February—“Beyond the Perfect Order Metric: Bringing Together Supply Chain, Category Management, and Mobile Technologies to Improve On-Shelf Availability”—we will explore how supply chain, marketing, and merchandising must develop better collaboration strategies to drive better on-shelf performance.
[Editor’s Note: Don’t wait until it’s too late to register for the seminar! Register by December 30, 2010 and pay only $995, a $200 savings off the regular price. Space is limited, so if you have some money left over in your 2010 budget, invest part of it in attending this seminar, where you’ll network and learn from your peers, such as Del Monte Foods, Sony Electronics, Whirlpool, Kraft Foods, and others, about this timely and important topic. Visit the seminar website for the latest agenda and to register.]
Add to this already complex mixture the fact that the shelf or end-aisle has a very substantial possibility of disappointing the shopper by being temporarily out of stock, temporarily void or permanently void in the store advertised. Nothing is more discouraging to a shopper, particularly in FMCG categories, than getting to the shelf and no longer finding their product.
We just completed a study that indicated almost 30% of the product skus in a given planogram, were no longer on the shelf when we went into the store to capture picture compliance audits.